KARACHI: DG Khan Cement Company (DGKC) has signed a contract with a Danish firm to buy engineering and equipment for a green field cement plant having production capacity of 8,500 tonnes per day (or around 2.5 million tonnes a year).

Company Secretary Khalid Mahmood Chohan said on Monday that DGKC inked the agreement with FLSmidth, a supplier of equipment and services to the global cement and minerals industries.

The new plant, expected to come online in the next three years, would be located in Mouza Chihai in Balochistan’s Lasbela district.

He did not mention the cost of acquisition. However, according to an earlier official announcement to the Danish Financial Supervisory Authority in Denmark, FLSmidth had put the cost of the plant (engineering and equipment) to be supplied at Rs6.5 billion ($65m).

In March this year, the Mansha group gave a subtle hint that it planned to go ahead with the DGKC stalled expansion of a 2.5m-tonne new cement plant in the Hub region at a cost of $300m.

The development has the potential to create some turbulence for the cement sector (in terms of price performance) as rumours and threats of predatory pricing (or price undercutting) are blown out of proportion.

However, market watchers affirm that the possibility of price undercutting was low. A cement sector analyst at brokerage AKD Securities said DGKC, along with other companies operating at high utilisation levels, were positioning themselves to take advantage of the government’s public policy tilt towards development programmes and incremental demand emanating from expected projects earmarked under the domain of China-Pakistan Economic Corridor (CPEC).

DG Khan Cement has been operating at an average capacity utilisation level of 98 per cent for the past seven years.

Other cement makers are also undertaking different projects. While Cherat Cement is pursuing capacity expansion, Kohat, Pioneer and Dewan Cement Ltd (DCL) are setting up waste heat recovery plants.

Coal-based power plants are being undertaken by Lucky, DGKC and Maple Leaf, while Lucky and Attock Cement are also into international projects in Congo and Iraq, respectively. Lucky is also working towards wind farms.

The AKD analyst stated the 29pc higher Public Sector Development Project (PSDP) allocation and about $44bn expected to be invested in transport infrastructure and energy-related projects in Pakistan over the next 15 years under the CPEC are being seen as huge revenue earners for the cement sector.

“With so many opportunities ahead for all, the expansion of DG Khan Cement into the Southern region, which a couple of years ago was thought to be a major threat, looks like having been averted,” said an official at a cement company.

Published in Dawn ,July 14th, 2015

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